Apple Strategic Analysis:
The Technology Industry and Apple Inc.
Team #1
Jade Black
Lauren Heldreth
Taylor Hutcherson
Roger May
Kody Roach
Hardware and Software
Industry Analysis

Is a blue ocean possible?
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How to compete in difficult times?
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Current changes and trends.
Chief Business and Economic
Characteristics
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Moore’s Law
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Customers
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Strategic alliances

Resources
Driving Forces for Change
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Pricing pressure
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Consumer preferences
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Computers as a commodity

Rising markets
Five Forces Model
Apple V. The rest
 Barriers may create leverage
 Substitutes
 Power of the buyers
 Power of suppliers
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Industry Competitive Positioning

Microsoft
 Product depth
 Product advancement
 Google competition
Industry Competitive Positioning

HP
 Comprehensiveness
 Technology Solutions Group, Personal
Systems Group, Imaging and Printing Group
 Doing everything may cause doing nothing
Industry Competitive Positioning

Dell
 Moves against HP and IBM
 International focus
 Expansion of products
Industry Competitive Positioning

Apple
 Constant innovation
 Products
 Marketing
Key Success Factors
Finances
 Differentiations
 E-Commerce
 Distribution Channels
 Constant innovation

Overall Industry Attractiveness

Apple competes within two industries;
Electronic Computer Manufacturing and
Software Publishing. Within these two
industries there are many different
competitors that embody many different
characteristics.
Overall Industry Attractiveness
Computer Manufacturing Industry
 The immediate short term lasting through most of 2010
has forecasted sales declining initially with a moderate
increase to pre-recession levels later in the year.
 The key for future sales in the computer manufacturing
industry is in smaller, more portable, wireless devices
such as smartphones, netbooks, and pdas.
 Netbooks represent major growth.
 Stripped down laptop without bells and whistles.
 Cellular based wireless internet.
 The manufacturer with the largest growth in netbook shipments
is AsusTek.
○ Asus is the lead provider of netbooks.
○ In 2008 AsusTek had an annual growth of 115% from the year
previous. This is more than double the growth of the nearest
competitor, Acer.
Overall Industry Attractiveness
Software Publishing Industry

The software industry is closely linked with the computer manufacturing industry.

The main areas of opportunity fall within those of the developing countries.

The strategy for focusing on developing markets is still a bit stunted by the current economic
state.

Through the recession as companies downsize and productiveness drops so does the need for
software. Overall sales are predicted to decline close to 2% from 2008 levels but will increase
over 1% by 2010.

Operating systems account for a relative large portion as there are only 2 main players for the
personal computer market.

The issue of piracy for the industry as a whole is becoming an increasingly important issue as
one third of all moneys spent on software was pirated.

The two major players are Microsoft’s Windows platform and Apple’s Os X.

The main advantage that Microsoft has is that it allows flexibility for other manufacturers to
license its operating system for use whereas Apple will only allow their operating system to be
used on Apple computers.

This vertical type integration has allowed for Apple to excel in some areas but its major downfall
still remains product price and market penetration, something that Microsoft is well ahead of
everyone else in.
Apple, Inc.
Company History
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Apple was founded in 1976 by Steve Jobs and Steve Wozniak in
Santa Clara Valley, CA.
The two built the first Apple computer in a garage and sold it without
a monitor, keyboard, or casing.
By 1977, Apple added a keyboard, color monitor, and eight
peripheral device slots; this caused sales to jump from $7.8 million
in 1978 to $117 million in 1980.
In 1984, Apple introduced the Macintosh in order to rebound from
earlier failed products.
Jobs pushed out of Apple in 1985.
That same year, Sculley ignored Bill Gates' request for Apple to
license its products and make Microsoft an industry standard. The
late 1980s brought new competition from Microsoft, whose
Windows operating system featured a graphical interface similar to
Apple's. Apple sued but lost its claim to copyright protection.
In the early 1990s, Apple’s earnings fell considerably.
In 1994 Apple began licensing ‘clones’ of its OS. By 1996, Apple
realized Mac clones were stealing sales.
Company History Cont.
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In 1997 Jobs resumed the position of CEO.
Jobs formed an alliance with Microsoft, and to protect market share,
Jobs also stopped the cloning license to get rid of the Mac Clones.
In 1998, Apple reentered the industry with its colorful array of
iMacs.
In 1999, Apple introduced a laptop (iBook) and began selling builtto-order systems online.
Apple started 2001 Apple opened a chain of retail stores in the US.
Also in 2001 Apple introduced the iPod.
Over the past few years, Apple has introduced many new products.
In 2005, it was the iPod nano, as well as the video iPod.
In 2007, Apple unveiled the iPhone. The company began 2008 with
the release of an Apple TV device with a new iTunes movie rental
service.
Also, in 2008 to reflect the increasing span of its product types, the
company announced it would change its name from Apple
Computer to just Apple.
Product Mix

“Apple offers a wide range of personal computing
products, mobile communication devices, and
portable digital music and video players, as well as a
variety of related software, services, peripherals,
networking solutions and various third-party
hardware and software products. Apple also
designs, develops, and markets the iPhone and its
family of iPod digital music devices along with
related accessories and servies, which include thirdparty digital content and applications through iTunes.
Apple also offers its own software products, including
operating systems server software, professional
application software, consumer software, education
software and business oriented software.” (Apple 10K)
Product Mix

The Mac desktop and portable systems feature
Intel microprocessors, and Mac OS X Snow
Leopard operating system and the iLife suite of
software for creating and managing digital
photography, music, movies, DVD’s and
websites






MacBook Pro
MacBook
MacBook Air
Mac Pro
iMac
Mac Mini
Product Mix
iPhone
 The iPhone is basically a combination of an iPod, an internet communication device
and a mobile phone. The iPhone’s design and interface is based on the MultiTouch
user interface of the iPod. The iPhone features email, web browsing, maps and is
compatible with both Macs and Windows-based computers. The iPhone
automatically syncs users content from their iTunes libraries, as well as contacts,
bookmarks and email accounts. The iPhone also allows users to wirelessly access,
in 3G areas, the iTunes store to purchase and download audio, video, and
applications
Apple TV
 Apple TV is a device that allows users to wirelessly play iTunes content on a
widescreen television. The Apple TV includes a 160GB hard drive capable of storing
up to 200 hours of video, 36,00 songs, or 25,000 photos. The Apple TV is also
compatible with high definition televisions with resolution up to 1080p.
Product Mix
Music Products and Services
 Apple offers various products in the iPod family of portable digital music
and video players. The iPod line comes with Apples iTunes. Apple’s
iTunes sells music, audio books, music videos, short films, television
shows, movies, podcasts and applications. Apple also sells iPod
accessories through their online store, their retail stores and also through
third parties.
 iPod Shuffle
 iPod Nano
 iPod Classic
 iPod Touch
 iTunes 9
Present Strategy Overview
Apple’s mission statement says that Apple, “is committed to
bringing the best personal computing, mobile, communication,
and portable music and video experience to consumers,
students, educators, businesses, and government agencies
through its innovative hardware, software, peripherals, services
and internet offerings”. (Apple 10-K)
 Apples strategy is seen throughout all areas of business
touching on Finance, Accounting, Marketing, HRM, and
Management.
 Apple’s vision statement is, “Man is the creator of change in this
world. As such he should be above systems and structures, and
not subordinate to them". Apple’s goal is to align these two.
 Every Apple employee lives out this mission and vision in their
everyday work. This contributes to the ultimate success of
Apple’s business strategy.
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Present Strategy

Financial Analysis
 Accounting and finance play a vital role as
the lifeblood of a company; without
responsible financial care a company will be
unable to survive. Sustainable success
requires a strategy that integrates finance
with other key departments (e.g.
management, marketing, etc…).
Present Strategy
Key Financial Factors
Sales Growth
 Simplest way to determine who has the most desirable
product.
 Sales is relative to competitors and the industry.
80.00%
Apple
2005
2006
2007
2008
2009
68.30%
38.70%
24.30%
35.30%
12.50%
8.00%
11.30%
15.50%
18.20%
-3.30%
70.00%
Microsoft
60.00%
Dell
18.70%
13.60%
2.70%
6.50%
-0.10%
HP
8.50%
5.70%
13.80%
13.50%
-2.26%
50.00%
Apple
40.00%
30.00%
20.00%
Microsoft
• Apple increases its sales on a yearly
Dell
basis by higher percentage than
competitors.
• Increase in sales in 2009.
• Growth in 2009 can be attributed to
increasingly strong sales of the iPhone
and iTunes.
HP
10.00%
0.00%
-10.00%
2005
2006
2007
2008
2009
Present Strategy
Key Financial Factors
Net Profit Margin
 Measure of the net earnings in relation to the net sales.
 Measures how much net profit remains out of each dollar of sales.
 Gives us an indication of how well a company is controlling its
costs and tells us how effective a company is at converting sales
into actual profit.
35.00%
Apple
Microsoft
30.00%
25.00%
2005
2006
2007
2008
2009
9.00%
10.30%
14.60%
14.90%
14.80%
32%
28.50%
27.50%
29.30%
24.90%
Dell
6.80%
4.50%
4.80%
4.10%
3.10%
HP
5.40%
6.30%
7.00%
7.00%
6.70%
Apple
20.00%
Microsoft
15.00%
Dell
10.00%
HP
5.00%
0.00%
2005
2006
2007
2008
2009
• Apple’s computers are assembled using mostly
other company’s hardware; however, Apple writes
their own operating systems.
•Apple's software is only minor percentage of
revenue, it plays an important part in their net profit
margin because Apple does not have to pay a
licensing fee for other company’s operating
systems.
Present Strategy
Key Financial Factors
Net Cash Cycle
 The net cash cycle is the number of days that cash is tied up in
the operations of a business.
 How long it takes for a company to turn raw materials or inputs
into a product and then subsequently to turn that product into
revenues and then to turn those revenues into cash at which point
the process starts over again.
120.00
2007
2008
2009
72.63
85.49
96.78
104.07
75.74
-25.20
-4.20
13.10
-6.00
-7.50
Dell
5.38
21.09
37.68
30.63
43.92
HP
96.91
100.99
82.13
71.15
79.94
Microsoft
80.00
Apple
60.00
Microsoft
40.00
Dell
20.00
HP
0.00
2005
-40.00
2006
Apple
100.00
-20.00
2005
2006
2007
2008
2009
• Apple's high net cash cycle due to not paying dividends
and retaining a significant portion of profits as cash.
• Holding significant amounts of cash makes Apple appear
less efficient, it gives the company flexibility to invest in
new companies or product lines, such as the iPod, iTunes,
and the iPhone.
•Apple also has a large net cash cycle because the
company has a large number of differentiated products
which translates into a large number of suppliers and thus
accounts payable.
Present Strategy
Key Financial Factors
Operating Cash Leverage
 Deals with how an additional amount of sales will affect the net
profits.
 Sales volume changes have a lever effect on profit because a
relative small increase or decrease in sales can have a much
larger increase or decrease in profit.
50.00%
Apple
2005
2006
2007
2008
2009
13.10%
13.90%
19.70%
20.80%
20.50%
44%
39.20%
39.10%
40.60%
39.20%
45.00%
Microsoft
40.00%
Dell
9.30%
6.20%
6.60%
6.50%
6.00%
35.00%
HP
9.10%
9.70%
12.00%
13.10%
13.00%
30.00%
Apple
25.00%
Microsoft
20.00%
Dell
15.00%
HP
10.00%
5.00%
0.00%
2005
2006
2007
2008
2009
•Apple's sales have a high profit margin and
thus a high degree of operating cash
leverage.
Present Strategy
Key Financial Factors
DuPont Chart
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Model for determining return on equity (ROE).
Return on equity measures corporations’ profitability by revealing how
much profit a company generates with the money shareholders have
invested.
Found by multiplying profit margin, assets turnover ratio, and the
leverage ratio.
2005
2006
2007
2008
2009
Apple
21.09%
23.74%
28.63%
27.97%
23.50%
Microsoft
22.19%
31.19%
43.00%
52.34%
38.31%
Dell
51.11%
86.24%
62.87%
81.81%
56.89%
HP
6.51%
16.71%
19.56%
23.97%
20.85%
100.00%
90.00%
80.00%
70.00%
60.00%
Apple
50.00%
Microsoft
40.00%
Dell
HP
30.00%
20.00%
10.00%
0.00%
2005
2006
2007
2008
2009
•Apple has the second lowest return on
equity; however, a ROE in the upper 20s is
still an extremely respectable number.
• Apple’s low DuPont number is because of
high cash reserves and no dividends.
• Apple’s growth is more internally focused.
Present Strategy
Key Financial Factors
Index of Sustainable Growth
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Measures a company's ability to grow using external sources of funds.
The larger the sustainable growth rate the greater ability the company
has to generate growth through external financing.
The sustainable growth can be calculated by multiplying the internal
growth rate by total debt over total equity.
A company can increase their sustainable growth rate by increasing their
debt leveraging. However involves significant risk.
2005
2006
2007
2008
2009
10.75%
14.16%
13.54%
15.00%
11.88%
8.90%
10.31%
8.53%
7.22%
5.46%
Dell
15.69%
17.48%
14.26%
25.66%
4.17%
HP
11.87%
23.02%
10.41%
15.51%
8.98%
100.00%
Apple
90.00%
Microsoft
80.00%
70.00%
60.00%
Apple
50.00%
Microsoft
40.00%
Dell
HP
30.00%
20.00%
10.00%
0.00%
2005
2006
2007
2008
2009
• Apple has highest potential growth
through external funds.
• Part of Apple's high level of sustainable
growth is due to their not paying dividends.
• Allows Apple to roll the money back into
the company which gives them more room
to invest their available funds into growth.
Present Strategy Cont.
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Marketing Criteria
 Clear and clever print ads, TV ads, and online communication
○ Create brand value/identity
○ “I am a Mac” campaign
 Create interest in one product to gain full loyalty
○ EX: iPod showing ease of use
 “Mac Experience” at Retail
○ Position business in a completely different way then competition
 Highlight competitors flaws light-heartedly by attacking whole category
 Provide AppleCare
 Expand into different areas to reach more customers
○ EX: China
 Focus on Creative and Consumer Markets
○ Integrate both worlds: Hardware and Software
Present Strategy Cont.
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Management/HRM Criteria
 Recruit and retain the brightest people
○ University campuses
 Career fairs, information sessions, interviews, and
internship programs
○ Retail Stores
○ Knowledge of products and training
○ Culture
 Not 9-5 job
 “Apple Fellows”
○ Degree of Secrecy
○ Hedgehog Concept
 Passion- Innovation
SWOT Analysis
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Strengths
 Innovative style
○ OS developed by employees
○ Compatibility with other PC’s software
○ Research Intensive environment
 1st to release new creative ideas
- EX: iPhone
○ High financial performance: net income from
$69 million in 2003 to $3,496 million in 2007
SWOT Analysis

Weaknesses
 High Research and Development Costs
○ Less cost effective in technology market
 Consumers ideas of Mac’s abilities
○ Marketing Issues: “not compatible”
○ Too expensive
SWOT Analysis

Opportunities
 Expanding music industry
○ iTunes
 Expanding marketing techniques
○ Informational advertising
○ Charismatic sales people
○ Adaptable managers
SWOT Analysis

Threats
 Participate in the fastest growing market
 R&D’s ability to keep up
 Competitors innovation capabilities

Core Capabilities
 Innovation within R&D
 Brand Management
○ iTunes, iPod, iPhone, and PC’s
 Efficient distribution channel usage
○ Internet, retail stores (EX: Bestbuy), and Apple
stores
Relative Competitive Strength

Brand Image
 Attractive to all target consumers

Superior performance
 Ease of use
 Hard to compete (EX: Windows 7)

Excess of cash
 Ability to react to market changes faster then
competition
 Different financial position then competitors


Largest music retailer
Steve Jobs: Founder and CEO
Relative Cost Position

Ratio interpretation

Integrated products improves cost
position

Cost position
Cost Position
30.00%
25.00%
20.00%
Apple
Microsoft
15.00%
Dell
HP
10.00%
5.00%
0.00%
2005
2006
2007
2008
2009
Strategic Issues and Problems

iPhone demand is driving Apple’s
fundamentals

C-level management

Product imitation

Consumer barriers

Research and development
Going Forward
Chief business and economic
characteristics
• Competing on price
• Market saturation
• Product imitation
Key Success Factors

Short term strategy to limit the
systematic impact of the economic
contraction

Internet integrated business model

Combating software piracy
Industry Attractiveness and
Future Profitability

PC sales

Software sales and services

Multimedia devices

Sustainability

Industry growth rate
Evaluating Apple’s Options:
Prospective Future Strategy

Leadership and employees
 Steve Jobs: Level 4 executive—years of
dedication and ingenious brand management, but
company must realize the need for modesty and
humility to become great
 First who, then what: hire the ‘right people’ (selfmotivated) then add their strategy and
organization
 Duality: Apple needs to continue this—Consistent
system, but freedom to think and innovate
○ Value innovation speaks for itself when referring to
duality
Prospective Future Strategy

Brutal Facts and Hedgehog Concept
 Brutal Fact: Steve Jobs probably not going to be around
much longer (health issues)—cannot repeat from the late
80s-early 90s
 Future CEO very important (smart and modest): Tim Cook
(COO) vs. Jonathan Ive (VP of Design) vs. Phil Schiller
(VP of Marketing)
○ Best two: Cook or Ive
 Hedgehog Concept: Innovation within their hardware and
software for PCs and portable music
○ Keep focus on value innovation for these products
○ Apple has no debt, and $31 billion in cash; should invest this
money into other technologies and more in R&D
○ Also invest in marketing and advertising; focus on themselves
rather than competitors (i.e. Apple vs. Microsoft commercials)
Prospective Future Strategy

Retail and Production Expansion
 Retail stores should continue to go global and hire
people for specific purposes
○ Concierge, Specialist, Genius, Creative, Theatre
Presenter
 Manufacturing obsolete if only in China
○ Build production site in S. America so lower lead times
and operating costs—continue to focus on supply chain
relationships, channel distribution, and logistics
○ Create contractual/outsourcing relationships with as few
vendors as possible to lessen the amount of POs; create
strong trust with suppliers and customers so that
information is shared, and demand can be predicted
better, or a flux in demand can be remedied easier
PC/Notebook Strategy

Continue to increase product differentiation
gap—constant value innovation and quality
improvement
 Increase R&D budget; continue to hire creative
thinkers

Expand market to educational institutions
 Elementary to college
 Tutorial sessions to show ease of use
 If students use Apple’s PCs at school, they will want a
Mac at home too (increase competitive advantage)

Create a netbook
 Portability is important; iPhone is closest Apple has to
a netbook but need to adapt to consumer
wants/needs
Music and Multimedia Market
Strategy

iTunes could be used to compete against Netflix,
Blockbuster, and Red Box—watch unlimited amount of
times within 24 hr period
 Expand film library (less than 1,000 right now)
 Can be applied to TV shows as well



Expand to video games (make iTunes compatible with
game consoles)
Fight piracy--design iPod software to only sync purchased
music (pirated downloads incompatible); Apple customers
would also purchase more (boost iTunes sales)
If Apple made downloads compatible with non-Apple
devices (e.g. Microsoft’s Zune) then it would be possible to
sell more music; the amount of additional music sold would
have to compensate for the potential loss in iPod/iTouch
sales
Software Strategy
Inter-operating system interaction: Make
Apple software able to be used on different
operating systems (e.g. windows)
 Make PC software available over purchase
over the internet

 Lessen raw materials—more ‘green’
 Keep software updates free (and DL over
internet)

Increase R&D budget
 Increase value and ease of use
Final Thoughts

Apple has continued to please their loyal followers and persuade many who had
previously disassociated themselves from the company:
 To continue/increase their success-focus on the customer; do this by continuous
improvement and product differentiation.
 If they can achieve these goals while adhering to their philosophies, there is no
limit to Apple’s future (and maybe regain their long lost position as an overall
industry leader in PCs)

Apple on a path from good to great: Dramatic and fast changes are almost certainly
going to fail to make it to a BOS
 No single defining action for a company to become great
 Slow process in which a company must uniquely strategize in order to build
momentum until a realistic point of breakthrough
 Apple: Ups and downs, but with the intelligence and innovation over past decade,
and with strong leaders and knowledgeable future decisions for the company,
Apple is more than capable of breaking away from the red ocean swimmers and
creating a sustainable BOS (even in the dynamic technology industry)